November 4, 2011
"The IMF will never be big enough to save the euro zone.” That is how one IMF official dismissed the idea that the fund would help put up a firewall to protect the euro zone. It could help, obviously, but in the end salvation was for the euro zone to figure out for itself.
With Greece potentially facing a default and exit from the euro in the coming weeks, euro-zone countries have been working to build up their rescue fund, known as the European Financial Stability Facility, though financial engineering that might expand it to about €1 trillion. But without the full power of the European Central Bank, which is not allowed to lend to states, this is not enough to save a country like Italy, should it collapse in the bond markets.
- So the Europeans had been hoping to winkle out some more tens of billions of euros from, or through, the IMF. Three options were under discussion:
- Increase contributions to the IMF, particularly from the bigger emerging countries, such as China. Europe might then be able to draw on a larger pool of funds.
- Get the IMF to generate more of its reserve asset known as Special Drawing Rights, a sort of virtual gold, that Europeans could pool, turn into real currency and pump into the EFSF
- Ask the IMF to establish and supervise a trust fund for the euro zone, into which countries could contribute.
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